While Russia’s army inflicts a terrible toll on Ukraine, the West has imposed ever-more serious sanctions on Putin’s financial backers.
These are busy and worrying times for oligarchs and their private armies of accountants and lawyers. Assailed by a range of unprecedented Western sanctions collectively amounting to a formidable economic counter-attack, it is far from clear that they will survive this assault with their vast assets intact.
It is difficult to keep abreast of the US, EU, UK, and other allied measures now raining down upon the heads of people who until a few days ago were among the most privileged human beings on Earth. Hundreds of Russia’s super-wealthy have been targeted, with new proposals surfacing each day. The response is perhaps best illustrated by research showing that at least four multimillion-dollar yachts are heading for Montenegro and the Maldives, presumably in the hope that they will be safe from seizure. Yachts can be tracked; other assets are less visible, but we can be sure they are also on the move.
Yet this is not an unforeseen crisis for the oligarchs and their professional assistants (many from big Western, especially London-based, firms), who have been preparing for this escalation for years. And while they might lose a few hundred million here and there, shrewd measures taken well in advance may parry the sanctions’ full force.
Examples such as Aleksandr Bortnikov, director of Russia’s Federal Security Service; Sergei Kiriyenko, the first deputy chief of staff for Putin’s office; Petr Fradkov, Chairman and CEO of a nationalized ”defense” bank and hundreds of others are now subject to asset freezes and travel bans that aim to limit their access to resources. Many if not all will already have abandoned dollar assets and Western locations in favor of offshore havens, or transaction-friendlier nations like China or India. There, assets are buried in shell firms with regularly changing ownership structures with the ultimate aim of sliding unseen back into Western economies. The Russian budget also helps mitigate oligarchs’ losses through indirect support such as bailouts or procurements, or even by direct compensation.
Historically, such tactics have proven relatively effective and losses are far from crippling. Consider metals magnate Oleg Deripaska’s seized $40 million Upper East Side New York mansion, small change in comparison with estimated $5bn net worth, and minuscule compared to the (possibly terminal) cost of crossing Putin. With the oligarch lifestyle dependent on Putin’s patronage, there is no choice but to follow orders; former Russian press minister Mikhail Lesin for example, was found dead after allegedly collaborating with the US government.
In 2014, after Russia’s invasion and annexation of Crimea, many sanctions were time-limited, set to expire just a few years later. If Putin takes this as a guide to the future, he may anticipate that the loss of overseas capital is temporary and that the short-term pain is worth enduring for the prize of Ukraine. Targeted action against individuals with ties to the Kremlin must continue to increase in scope and depth, must not have end dates, and must carefully anticipate likely evasion techniques.
Developments this week have been positive: “unprecedented” measures have been aimed at senior Russian leaders including Putin himself, Switzerland has broken long-standing traditions and joined the EU in freezing Russian assets, and the UK has promised to act against oligarchs’ hidden wealth. Deripaska as well as banker Mikhail Fridman, both sanctioned, have this week called for an end to the bloodshed. But as Fridman has since softened his tone and the vast majority of oligarchs remain silent, it remains unclear what effect the current pressure on Putin’s inner circle may have.
It will be telling to see what happens to billionaires such as Roman Abramovich – the owner of Chelsea Football Club – and 34 other oligarchs named on a list created by Alexey Navalny and read aloud by a British MP using Parliamentary privilege to avoid possible legal action. Another MP told the House of Commons that Abramovich is “widely regarded as Putin’s cashier,” something the Russian denies.
Beyond well-prepared oligarchs, sanctions must target the broader community of civil servants who run Putin’s government via the President Council, his security services, and even media propagandists — and be supported by escalating asset freezes to asset seizures. (Edward Lucas, of CEPA, has suggested US or EU travel bans on Western nationals working for Russian propaganda outlets.) Lastly, the sanctioning countries must ensure anti-money laundering systems capable of preventing the exploitation of the licit money system.
It is becoming clear that an extended invasion of Ukraine will become increasingly expensive for Putin and the Russian oligarchs, whose power is derived from access to money. The West must remain vigilant to ensure these costs endure.
Eriks Selga is a Non-Resident Fellow with the Digital Innovation Initiative and Transatlantic Leadership program at the Center for European Analysis (CEPA). He is a risk analyst at the Latvian Financial Intelligence Unit, and is pursuing a PhD at the University of Hong Kong.
Jason Israel is a Non-Resident Fellow with the Transatlantic Leadership Program at the Center for European Analysis (CEPA). He is Cyber Security Practice Lead for Partners in Performance Australia, and a Captain in the U.S. Navy Reserve.
March 2, 2022